In DTC,LTCG is likely to be taxable,may be @5% or 10%.I have investments in funds like R.Growth,H Top200,D Top100etc for last, say about five years.Should I redeem & then reinvest to avoid tax.Should I switch from R.Growth to RSF Equity?Kindly reply in detail.Thanks,urs sincerely
Dear Dr. Lal, First of all. Plz. note these are mere proposals not the act as of now for DTC. The final picture may be different from what we are seeing today.
Regarding your query for redemption – Sample this –
Say you have total basic investment of 5L Rs. as on date where the with profit value is say 8L Rs. It means 3L Rs. is your profit. Now if you redeem these 8L Rs. in full & reinvest the same in same funds. your holding period ‘ll be counted from the reinvestment date. So in case in future, just after implementation of DTC, you require money due to any reason, the gains if any ‘ll be STCG & these STCG ‘ll be taxable at your marginal slab rate. Now If we consider that you are going to hold these units for a long term & ‘ll redeem after 4-5 more years in DTC, the LTCG ‘ll be discounted based upon your holding period. In the example given in the new proposals, it seems, higher the holding period, higher ‘ll be the discount for calculation of LTCG.
Now interestingly If you don’t take any action, the holding period is already eligible for LTCG & as the period is already more than 5Y (by the time, DTC is implemented), the resultant Tax liability ‘ll be very low. As now after 8-10 years (5Y current holding + 3-5 year more in DTC), your total holding period ‘ll invite a high %age discount & thus lower tax outgo.
One more Question I want to ask – Due to these DTC proposals, ‘ll you stop investing from now onwards? In any case, the future is EET.
Your query is similar to public behavior – Fill the fuel tank of vehicle just b4 the hike in fuel prices. “ll this tank fill last for life long? NO. In any case we ‘ll continue to use now so called high priced fuel. Same is here in your query.
Plz. don’t worry for now & future. Keep Investing. Yes redemption due to under performance should always be done.